Smart money: order blocks, FVG, liquidity

An order block is a candle or a small group of candles that sits just before a sharp move. The idea is that a large order was filled there. Because that order was big, the person who placed it may still have some of it left to fill, so the price level gets watched. That is the whole claim. It is a story about the past, told with a rectangle drawn on a chart.

A fair value gap is a gap between one candle's low and a later candle's high, or the mirror of that. Price moved so fast that it left a thin stretch where little trading happened. The story is that price may come back to fill that stretch. Again, the gap is a fact you can see. The return is an expectation you cannot.

Liquidity means resting orders. A liquidity sweep is a quick push through a level where many stop orders are assumed to sit, followed by a move back. The sweep is visible after it happens. The assumption is that the push was made to reach those orders. Two people can look at the same sweep and disagree about whether it was deliberate.

All three terms share one belief: that price moves because large orders are filled, and that the places where they were filled leave marks. That belief may be right or wrong. What matters for your money is that the marks are drawn after the move, not before it.

An order block has no fixed size. One person marks a single candle. Another marks three. One person counts only the last down candle before a rise. Another counts the first. The chart does not settle the argument, because the chart has no rule for it. The term is a label, and labels are chosen.

A fair value gap has the same problem. On a quiet day, gaps are small and rare. On a fast day, they overlap, and you must decide which ones count. If you mark them after the price has already returned, you will find gaps that worked. That is not evidence. It is selection.

This matters because a label feels like information. It is not. It is a way of describing what you see, in words other people also use. If you write down the price level you are watching, and the pip distance to your entry, you have something you can check later. If you only write the label, you have nothing to test.

Every trade pays the spread before the market moves at all. On EUR/USD the spread is often around one pip, but it varies by broker and by the hour. If you trade 0.10 lots, one pip is USD 10 x 0.10 = USD 1. At ₦1,600 to USD 1, that is ₦1,600. That cost is paid whether the label is right or wrong.

Some brokers also charge a commission per lot. The amount varies, so check your own platform. If the commission is USD 5 per lot round turn, then 0.10 lots costs USD 0.50, or ₦800. Add the spread and the round trip is about ₦2,400 before the price has moved in your favour.

Now compare that with the move you expect. If you are watching a 15-pip move on 0.10 lots, the gross is USD 15, or ₦24,000. Take off ₦2,400 and you keep about ₦21,600. If you are watching a 3-pip move, the cost is most of it. The label does not change that arithmetic.

This is why the lesson starts with cost. A term like order block can be useful for describing a chart. It cannot make a small move pay. Work out the pip value and the round-trip cost first. If the cost is larger than the move you expect, the label is irrelevant.